Episode 9: Esteé Lauder's Al Iannuzzi on future trends, circularity and simplicity

In episode 9, the latest in our ongoing series of guest-centric features, we’re pleased to welcome Al Iannuzzi to the podcast. Al is Vice President of Sustainability at Esteé Lauder Companies.

Al has made his career as an Environmental, Health, Safety and Sustainability Executive and author, and has over 30 years of experience as a subject matter expert in the EHS&S field. His 2017 book ‘Greener Products’ is a must-read – insightful, engaging and a fitting accumulation of the wealth of knowledge Al has picked up in his career.

In this episode, Al, Neil and Jim discuss what product managers should be paying attention to right now, how they can cut through the noise and get to the route of the matter at hand – and what the true goal of ‘greener’ products should be.

In this Episode

Shelley: Al, as you know, our listeners are product managers and others who have a role developing sustainable products. You're active in this space; you teach, you write, and you work in this space. Right now, what do you think is the most relevant thing for our listeners to know? [01:00]

• Al: I have done quite a bit of research on making products more sustainable or greener. Whenever I speak, I like to say this: There's no such thing as a green product. And the reason I say that is if you think about a product, like think of the greenest product in your mind right now, and what I typically tend to think about are, like 7th generation products or Method products, because I think of household laundry detergent or dish detergent, those type of things. And those products are very sustainably minded when it came to bringing them to be. But even those products can be improved. If you think about the raw materials it takes to extract from the earth and the manufacturing of those raw materials and then further manufacturing and then transportation to distribution centers and then from there to the place where it's being sold, the use phase of the product, and then the end of life of the product and the packaging, there are improvements that still could be made for a product that some people would call green. [01:15]
• What does green mean anyway? There's no obvious definition for green, so that's why I say there's no such thing as a green product, because every product can be improved. That's why in the book that I wrote called Greener Products: The Making and Marketing of Sustainable Brands. I call it greener. It's a journey. And you can always make a product or a process more efficient, better.
• The other thing I like to focus in on is when it comes to product developers, is that a lot of people are in different places when it comes to thinking how important sustainability is to bring a product to market. But perhaps the strongest case for product developers to get their mind around is future trends. And there is a study by the consulting firm McKinsey. They actually wrote this book called Resource Revolution. I cite that in my book. Some of the things that they are stating will happen is by 2030 there will be 3 billion more people in the middle class and primarily that will be coming from India and China. Anybody who's visited those countries, you see tremendous growth. And if you think about the growth of the middle class, so what does that mean? People coming into more prosperity, so they have more availability, more income to spend on things besides just basic living needs, right? So that means that these 3 billion people moving into the middle class are going to want the same thing that the listeners have. They're going to want cars, they're going to want cell phones, they're going to want iPads, TVs, you name it, new clothing and home goods. With all of that, it's more difficult to extract materials from the earth. So new mining discoveries have flattened; it cost like twice as much for an oil well that it did over a decade ago. All these come from that study. So no matter what you believe or think about sustainability and about the biggest issues in sustainability when it comes to climate, or even what I call the war on plastics, because there's pressure on single use, disposable plastics, whatever you think about those things and how dire you think they are or not, everybody can agree on, these are trends that are really happening. And it's going to put more pressure on raw materials. So raw materials are going to cost more in the future, they're going to be less available. Therefore, what we have to do is design products in a more efficient, better way. And that's to me one of the most important things for product developers to be thinking about.

Neil: Al, I think the idea of a greener product, it resonates with me. At the end of the day, even when you design new products, it's always an iteration. There are very few products that are just fundamentally new. What is the goal? Is the goal the continuous improvement in your view and in the context of this future - the demographics where we will have to do a lot more with less - do you think that's the equation to use? Which is if we keep cutting out inefficiencies in the process of how we take raw materials and make products out of it, we will hopefully, maybe not decouple, but increase our ability to serve this broader mass with the limited resources that we have or the decreasing availability of resources that we have. [04:58]

• Al: Like with anything from a sustainability perspective, there's multiple things to be concerned about and to be thinking about. Just look at your cell phone nowadays. How many devices you go back 10, 15, 20 years ago had to be made with more materials for all the functionality of that cell phone. It's not only just communication device, it's a camera. Sometimes we forget about all these advances, and technology is always advancing and getting better and better. That's one of the things, yes, we have to make things more efficient, and efficiency is one of the lenses we should be looking at. But when we do sustainable innovation of new products, what we want to do is look at various lenses. [05:40]
• Another really interesting concept that has cropped up over the last ten years or so is the whole idea of circular economy. And this ties into original design for the environment thinking like design for disassembly. We talked about those things for years, but now it's becoming more and more imperative and more and more people are looking for this. And designing products that have greater functionality with less materials, less resources, is really one of the things. And then always keep in mind the shelf life of this product. At the end of its life, what's going to happen to the packaging? What's going to happen to the product? Can it be like that whole cradle to cradle thinking? Can that end of life of that product and packaging be raw material into another?
• Anytime you can mimic nature, and that's a whole other great concept too, biomimicry, it's a win. Because you're following things that are more efficient and that's the way the world operates. I think when we violate that type of thinking, that's when problems happen. When we just have single use disposable plastics, for example, and when you're not doing things that can break down anymore or put back into commerce, then you're not designing things very efficiently and you're not doing the best you can as a product developer.

Neil: The challenge we have is as sustainability experts, we have all of these ideas; and you talked about circularity, biomimicry, dematerialization. But for product managers that are, I don't know, building the next laptop, what would you ask them to use as primary design parameters? Because there could be secondary things that you want to look at to make sure you're not creating harm. But is there something that you see, given the market today, given the environment today, given the societal apprehension to a lot of, I think the anti ESG wave that you've seen recently could be simplified for product managers and say, pick these three things and they will be a great primary design parameters when you're designing new products. [07:34]

• Al: You hit on a lot of good things there and let me quickly address the whole anti ESG thing. To me, anti ESG isn't relevant to manufacturing companies or companies. It's really more for those people selling stock and managing stock funds. And that's where I think a lot of this anti ESG thing came from and it's not a understanding who you're working for and who the consumer is or the customer is. So that doesn't affect Estee Lauder, where we're making prestige beauty products and making them more sustainable and thinking about the packaging at the end of its life and making it more recyclable. Matter of fact, our consumers, our customers are looking for us to be paying attention to these things. And we always see these surveys. Now more and more people are interested in buying products from companies that are good corporate citizens that are doing things the right way. So if you're stepping away from these things and you're not paying attention to these things and your competitors are, you're going to lose. [08:17]
• Now, one of the other things that you hit on that I think is super important, and I worked with Jim when he was working as a consultant when I was at Johnson and Johnson, is anything you do for a product developer or a marketer to help them to make a product more sustainable has to be something simple. If you make something complicated, like, oh, we want everybody to do lifecycle assessments, and it's going to take forever. If you slow down the R and D process, the new product launch process, you've lost, forget about it. You got to keep things simple. It's got to fit into regular business processes. That's a winning proposition. So what should you focus on? And this takes me back to the days when I was working with Jim and kind of call him the godfather or grandfather of life cycle assessment. Lifecycle assessments are a really great tool. They're one tool in the toolbox, but lifecycle assessments are really helpful to identify hotspots. And I worked with Jim and we developed, when I was at Johnson and Johnson for all the product categories, i was like bar graph of where were the biggest hotspots for, let's say a consumer product that was like a shampoo. We did category life cycle assessment. We found out where the hot spots are. Was it in the raw materials? Was it in transportation? Was it in the use phase or the end-of-life phase? And then we had a simple bar chart. And you can imagine just seeing a bar chart and where the highest impact areas were, or the medium ones is where you should be spending your time. Because if you're spending your time on, let's say reducing water in the manufacturing process and that's like a low life cycle impact, then you're not really moving the needle. But if it's the energy use of a plug-in product and you're making that product more energy efficient, that's what you should be focusing on. And then not only that, you can use that as a marketing claim. Hey, we've made this product more sustainable, and we reduced energy by, let's say 20%. And on top of that, the lifecycle cost of running a piece of equipment is going to be less. So, you're tying in multiple green marketing thoughts here. It's cheaper for you to operate this and it also is better for the environment. That's a winning proposition and the simplification tool is really to help the R and D, the scientists, and the marketers to know what to focus on.
• I'd like to just mention one of the things that I partnered with Jim on, we developed at Johnson and Johnson a greener product approach called Earthwards. And in that we had a four-step process, and one of the steps was to understand the lifecycle impact product and make an improvement. You had to make three improvements in the product in order for the product to be considered an Earthwards recognized product. And in that you had to understand the life cycle impacts and the improvements had to be in a high or medium life cycle impact area in order for it to be meaningful. And that was tied into that whole type of thinking.
• Jim: I remember all that work and I remember one of the things that I thought was very important about all that conversation early on was that you needed to lay out what is the vision of why you're doing all this. And part of the effort that when you went in, you really got to the point where when we're done, we're going to be successful because we've had a greener product, but it also creates a cost, a brand improvement, reduce your risk, things like this. So, it's a much more of a combination of sustainability, environmental and business value. And that was part of the vision. It was going to be greener, and it was going to create a business value. So, I think that was part of the thinking, which I think was foundational to why the Earthwards were such a powerful tool. [11:58]
• Al: I mentioned this in the greener marketing part of my book, that sustainability should be an ‘and’. In order to win in the marketplace, your product has to be at the right price point, it's got to be high quality, and if you can demonstrate that your product is more sustainable than the competitors, all other things being equal, then you should win in the marketplace. That kind of ties into what you're saying. [12:43]
• One of the things that's super important for product developers to think about is become best buddies with your marketers, whoever's working on your brand. Because whenever you make an improvement, you want to be able to speak with facts and data to your target market. It could be a consumer or customer. If you're business to business type of a company, you should always be thinking about that too. The example I gave about energy efficiency and cost savings. You should be thinking about those things and what claims could be made and what substantiation. In order to avoid greenwashing, you have to have facts and data to substantiate anything you say from an environmental perspective. And we're seeing more and more pressure on this, which is a good thing in Europe, where they develop legislation now to prevent anti greenwashing, which is good for companies who are science based and have a lot of data to substantiate what they're saying publicly.

Jim: I want to follow up on something you'd said earlier: you got the customer, and you got the consumer, you've got corporate policy, and you've got the conversation you had about the increase in the middle-income folks, and you've got all the standards and regulations coming out. What kind of guidance do you give to a product manager? How do they decipher all that? [14:02]

• Al: It ain't easy! It's getting more and more complicated and more difficult, like in Europe now, things that used to be voluntary. Think about the sustainability movement. It's really a business-to-business movement. And one of the things I speak about in my book too are market drivers and big companies like Walmart when they started talking about sustainability. Think about like the largest company in the world asking their customers who are selling product in their stores to tell me about your packaging and is it recyclable? We don't want you to use these specific ingredients in your products, even though you're allowed to from a regulatory standpoint. What type of greenhouse gas emission programs do you have? Are you adopting green power? Help us with Project Gigaton that we're committing to. Because if you think about lifecycle assessment of a Walmart business, it's not just stored. The biggest impact are all the products that are made by all the other companies that get sold in their stores; that whole scope 3 greenhouse gas emissions. So, you have the customer and the business-to-business type of pressures, and now you have these regulations. [14:33]
• Just about every Fortune 500 company voluntarily puts out an annual sustainability report with goals, targets, metrics. But now Europe is mandating that, and it's going to start kicking in over the next couple of years. Even if you're not headquartered in Europe, if you sell in Europe and you're a substantial company, which pretty much any Fortune 500 company would fit into that category, you're going to have to comply with this European sustainability reporting directive. That's one of them. The whole green deal is a whole bunch of different initiatives. It's very complicated. It's getting more and more complicated. So, you have to have good management systems in order to do that. And you have to embed these management systems into the new product development process. You have to have stronger than ever connections within a company with your regulatory affairs group, with your public affairs team and your law department. Everybody's got to be on the same team, working together, understanding what the requirements are and then building that in. And a lot of times, sometimes the customer requirements trump everything else because you got to sell your product. So, you have to listen and you have to get good customer insights in order to set up your new product development keys the right way.

Jim: Thank you for that, because that's my number one golden rule. There's no such thing as green products, only greener products. So, I appreciate your willingness to share that. I'm wondering if companies are responding to the regulations and I don't need to do anything more because I don't really care whether it's greener or not. If I meet a regulation, it's green, and that's all I have to do. I wondered if you could speak to that. I mean, are these government requirements actually creating a barrier for really this greener perspective? It's a more sustainable perspective on products. [16:43]

• Al: Yeah, that's a good thought. I haven't thought about that much, but I do have some ideas here. I would say that if you look at the European legislation, it's more of a risk management perspective. It's looking at like human rights, and these are things that we've been looking at for years, right. But they're actually codifying, looking at human rights, it's looking at deforestation and things like that in the supply chain, other packaging. Of course, companies could always just take the minimum, but if you do that, I think you're putting your company at risk. Let's say if you're a business-to-business type of a seller, the greening of the supply chain type of movement, which has started many decades ago, that continues to go. If I'm trying to sell to a company that's considering sustainability as one of the factors of buying your product, and are you going to help me with my greenhouse reduction, greenhouse gas reduction goals? And if you're totally ignoring that, I think it's going to be a losing proposition in the future. You have to pay attention to these things and you have to be proactive. Even the European legislation, it's a part of sustainability. It's not covering everything. [17:17]
• One of the things we do at Estee Lauder is we have a sustainability trend tracking process and we look at what's going to happen next. What are the cues in the marketplace. We look regionally, we look at what NGO's are saying, and we look at what leading government organizations are saying and in a policy realm, and we kind try to predict what the next thing is. And there's always new things coming right now. Like, the newer thing is this whole biodiversity and nature connection with climate. It's all mashing together and becoming a big issue. So, we read that and we tried to position our company to be able to stay ahead of that type of thing that's not covered in the legislation.
• Legislation is always going to be lagging. That's another good concept, too. You have to comply with the regulations. But if you want to stay ahead of these things, and reputation is one of the biggest business driver for sustainability. If you are found out of doing something that would be considered not favorable by your target customer group, it could hurt your reputation, and you could even lose customers for life. Who wants that, right? So you have to be proactive with sustainability in order to win. I guess there's some risk of that but I think the companies that will be taking that approach are really just trying to get by.
• Neil: I think also if you look at what kind of regulations are being put in place in Europe, they're not telling you to do anything besides disclose what you're doing. [19:42]
• Al: [19:52]
• Neil: And we use this in one of our previous podcasts, where principally what they're doing is they're putting companies into glass houses so everybody can see what they're doing. So, I don't think it's setting as much, at least with the customers that we speak with, it's not setting a target in terms of what is the level of sustainability they need to achieve in their products and services, but more about the kind of pain that they have disclosing probably what they're not doing. [19:53]
• Al: It's actually pretty smart. If you look at the United States regulatory process over the decades one of the things they did many years ago, the US EPA, they asked companies to volunteer. Well, it was a regulation to report on toxic release inventory. I still remember this from when I was at Johnson & Johnson. And just reporting it alone then, you know, news agencies putting reports out there, it put tremendous pressure, made us all say, how are we going to reduce these things? How are we going to do something differently? Just that alone. And then the other smart thing the EPA did - voluntary programs are sometimes the most effective - they sent letters, a letter to the CEO's of companies to say, would you like to commit to our 33/50 program? It was like reduced emissions by 33% by such and such a year (I don't remember the years) and 50% by such and such a year. And then of course, it's one of the talking points, “we signed up to this program” if you're getting pressured in the news media. And just by sending a letter to all these CEO's, it reduced toxic chemicals dramatically, millions of tons of toxic chemicals. Just by making data available publicly is enough to get action. [20:19]
• Jim: The reason I asked the question is because it goes back to my golden rule three: Information is essential, but not sufficient. And I'm afraid companies are going to look at these regulations and they're going to say, okay, now that's all I need to do. I don't need to worry about this kind of thing, which I think the opportunity for us and others and you all within the companies, you need to be able to explain what those regulations are and where they are good and where they're limited, to be able to get to the point where the real value of moving and embedding and sustainability and the environmental attributes and social that are critical into the decision making, into the product design is where the business value is. And yes, you're going to meet the regulation, but that's just the minimum. It's essential, but not sufficient. [21:36]
• Neil: But Jim, I'm not going to ask to walk back on regulations. [22:23]
• Jim: No, no. [22:27]
• Neil: We worked almost 30 years to get these regulations in place that create a minimum requirement of companies to disclose. You can still do as bad as you want. You can still do absolutely no eco innovation. Your products can be as dirty as they are right now. You just have to tell us now. And by telling us, it becomes public. With CSDDD, which is the due diligence directive, there is liability associated with that. So, I disagree that it's going to make people complacent. Fulfilling the regulation means I'm going to disclose this information publicly. It doesn't talk about activity. [22:29]
• Jim: Yeah, I didn't mean to imply that that was the minimum. I'm afraid that some people may think that. And for us, what we need to be able to do is recognize its value, and it's important. But there's still more needs to be done and helping people understand the distinction. But then say there's more to be done, and these are what else needs to be done to build off of those requirements. [23:11]
• Al: I think companies that are serious about sustainability are going to continue to do what they've been doing. If you look at our company, my current role in Estee Lauder, we look at the key groups, and if you look at the key groups that we focus in on, it's our consumer. So, our consumers want more sustainable products, especially the Gen Z and millennial consumers who are getting more and more income now as they get older, and they want to buy prestige beauty products like ours. They want to know that we're paying attention to the packaging, you have climate goals, you're making progress on them, the ingredients that we use; they want to know about all that stuff. You look at investors. We just recently met with roughly 30 of our top investors, and they all continue to ask questions about sustainability, ESG, and they still think it's important. It's one of the lenses that they look at from a risk perspective. Are you managing these issues? Because they know that if you get behind these issues, it can really hurt the reputation of the company, it can hurt your reputation with the consumer and therefore hurt your sales and therefore hurt your stock price. So, they're looking at that, too. And then our employees are another group too. Most employees nowadays, especially those coming out of the university now, they don't just want to work for a company for a paycheck. They want to work for a company that is serious about sustainability. They're a good corporate citizen, and they want to hear what you're doing. And our employees, they love to hear about the stuff we're doing, especially when it comes to, like, greenhouse gas emission work. [23:34]

Neil: Al, there are so many reasons for companies to invest in a more sustainable way of doing business. But have you seen product managers who still have this apprehension? And more importantly, have you seen product managers that have overcome it? And what I'm trying to figure out is, what was that switch that you might have noticed that we could identify, or at least product managers that are listening to this podcast could identify and say, hey, this is my time. This is what I would use to be able to create the case, to doing business differently, to creating new products differently. [25:11]

• Al: So, what happens probably in all large companies, is that top management gets it right. And they say we should do all these sustainability initiatives and it should be a priority for us. Then as it goes down lower into the organization, we have this as a requirement, but we also have cost pressures., and you have profit, P&L responsibilities. You have all these other priorities you got to match along with sustainability. So of course there's going to be some people who are going to push back on it, especially when there's times like we're living in with inflation, that’s putting pressure on raw materials, and you have to look at cutting costs, it becomes more challenging. How do people get over that? I'll give you an example, a fairly recent example. Towards the end of last year, 2023, we did some training of our top executives on climate, and we covered our climate goals. We had a third-party consulting firm who helped to deliver the message with us. And we showed everybody what our objectives were, we shared what the three groups I just mentioned that it's very important to them. And really, when the rubber meets the road, I remember our CEO telling me when I started about five years ago at Estee Lauder, is that everything has to have a business value, and that's the way businesspeople think. So, you have to demonstrate the business value. And the business value is that our consumers, investors, employees, and employers are looking for this. We've made these public commitments, too. We have a science-based target, for example, for reducing our greenhouse gas emissions by 2030. And after that, it was pretty telltale that we started having some senior vice presidents that were more eager to identify programs that can be deployed to reduce, let's say, our Scope 3 emissions. We started getting more traction on things. Facts and data, that's what gets management's attention. [25:45]

Shelley: And this is a good segue into how we often like to end this podcast, which is how do we translate what we've been talking about with these market trends, increased regulations around sustainability and being in a glass house? How do we translate that down to the product manager and bring it down to something that they might be able to implement next week, on Monday morning, and do something differently? What would you like to suggest or recommend a product manager think differently about next week? [27:54]

• Al: Make sure for the product that you are responsible for that you understand what the hotspots are, where the key initiatives that you need to focus on, as I was mentioning earlier with life cycle assessment. But it also could be other trends that are coming from the marketplace. That's one thing. [28:20]
• The other thing is that 80% of the environmental impact of a product is set in the concept stage. I've heard that in multiple places. So, if you don't have sustainability checks in the concept stage, you should develop it. It doesn't have to be anything really complicated. Again, to our earlier discussion, keep it simple. But if you know what your hotspot areas are, just ask some simple questions. Let's say you know there's some ingredients of concern, or raw materials of concern that your customer's not looking for; have a simple checklist or something like that to think about what the most important sustainability concerns for that product type are. And that's what I would say as far as trying to make it practical.

Links to Things We talk about

• Greener Products: The Making and Marketing of Sustainable Brands by Al Iannuzzi - https://greenerproducts.biz/
• McKinsey Global Institute, Resource Revolution - https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Resource%20revolution/MGI_Resource_revolution_executive_summary.pdf
• Earthwards at Johnson & Johnson - https://www.jnj.com/innovation/earthwards-a-johnson-and-johnson-program-helping-create-a-more-sustainable-world
• US EPA 33/50 Program - https://archive.epa.gov/oppt/3350/web/pdf/3350-fnl.pdf
• The EU’s Corporate Sustainability Due Diligence Directive (CS DDD) - https://www.consilium.europa.eu/en/press/press-releases/2023/12/14/corporate-sustainability-due-diligence-council-and-parliament-strike-deal-to-protect-environment-and-human-rights/

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